by Calculated Risk on 1/17/2016 08:40:00 PM

Oil prices are still declining with Brent falling below $28 today.

Here a few excerpts from an article by Professor James Hamilton: World oil supply and demand

According to the Energy Information Administration’s Monthly Energy Review database, world field production of crude oil in September was up 1.5 million barrels a day over the previous year. More than all of that came from a 440,000 b/d increase in the U.S., 550,000 b/d from Saudi Arabia, and 900,000 b/d from Iraq. If it had not been for the increased oil production from these three countries, world oil production would actually have been down almost 400,000 b/d over the last year.
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Since I last updated these calculations in September, the dollar has appreciated 3% against our major trading partners, and the price of copper has fallen 16%. Based on a weekly historical regression of oil prices on these variables along with the 10-year Treasury yield, we would have predicted a 10% drop in the price of WTI from $46/barrel in $41.50 today on the basis of changes in the exchange rate, copper price, and interest rates since September, explaining about a third of the drop in oil prices since September from international factors that are not unique to oil markets.

Bob Barbera discussed the role of slowing world GDP growth as one of those factors. His graph below shows that the observed slowdown in world GDP since 2010 ... could easily account for much of the drop in commodity prices through 2014. Barbera speculates on the basis of the numbers for Chinese rail shipments and electricity production that the true Chinese GDP growth for 2015 may have been significantly below the country’s official target of 7%. ...
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If Iranian production is about to surge, Iraqi production remains high, and the Chinese economy is stumbling, that can only mean that even bigger drops in U.S. oil production are inevitable.